That's an odd error. It looks like xinit, (or your distro's equiv) thinks that X is found in /etc/X11, which it shouldn't be. Normally X (the actual X Windows Server) is found in /usr/X11R6/bin or something like that. What happens if you type each of the following:
file `which X`
Notice that on the last command the quote marks are back quote, or back tick, whichever you call it.
Also, what distribution are you using?